Surcharging vs. Convenience Fees vs. Dual Pricing

The Complete Decision Guide for Business Owners

By Dale Erling 15+ years payments & fintech expereince | Updated for 2025–2026 | Visa & Mastercard Rules | All 50 States |9 minute read

Executive Summary

U.S. merchants paid well over $187 billion in credit and debit card “swipe” and processing fees in 2024. For many small and mid-sized retailers, card processing fees are the largest operating cost after labor.

To offset these costs, many businesses use three primary legal approaches: credit card surcharging, convenience fees, and dual pricing (cash discount programs). They are not interchangeable — each follows different card‑network rules, faces different geographic and state‑law limits, and has very different effects on customer behavior.

Surcharging: A percentage fee added at checkout for credit card use, capped at 3% for Visa and 4% for Mastercard, and typically requiring 30 days’ advance notice to your processor before you begin surcharging. Surcharging remains prohibited or heavily restricted in several states, including California, Connecticut, Maine, and Massachusetts.

According to J.D. Power, 65% of cardholders have encountered a surcharge or higher cost when using their credit card, and among those, 81% have used an alternate payment method at some point to avoid it.

Convenience Fees: Flat-dollar charges for using a non‑standard payment channel (for example, paying online when the business’s normal method is in person or by mail). Convenience fees are broadly legal but tightly scoped by card‑network rules: the channel must be a genuine ‘alternative,’ and the fee must be a fixed dollar amount rather than a percentage of the transaction.

Dual Pricing: Two prices shown wherever any price appears — a higher card price and a lower cash/ACH price. Dual pricing/cash discount programs are legal in all 50 states when structured as a true discount, frame the difference as a reward for cash rather than a penalty for card use, and typically create the least customer friction. For most consumer-facing businesses, this is the safest and most effective way to recover processing costs.

This guide explains all three models in depth, compares them side by side, maps surcharge legality by state, and provides a clear decision framework for choosing the right model for your business.

Why This Guide Exists

U.S. merchants paid more than $187 billion in credit and debit card processing “swipe” fees in 2024, and those costs keep rising. For many small and mid-sized businesses, card payment processing has become one of their largest operating expenses, often trailing only labor and occupancy costs.

You have three options for lowering your card processing costs, surcharging, convenience fees, and dual pricing Each option differs in how they operate, follows different eligibility requirements, are treated differently by the card brands, and can trigger very different customer reactions. Confuse one for another or implement them incorrectly, you risk compliance violations, card‑brand fines that can reach into the hundreds of thousands of dollars, and long‑term damage to customer relationships.

This guide strips away the confusion so you can quickly see which model is the right fit for your business, what rules apply, and how to put your chosen approach in place with as little risk as possible.

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The Problem These Models Solve: Understanding Processing Fees

Today, most credit card spending is on a reward and business credit card, and those cards have the highest interchange fees. Every time a customer swipes, taps, or types in a card number, you pay interchange to the issuing bank, network assessments to Visa, Mastercard, and others, plus your processor’s markup.

Blended together, that usually works out to roughly 2.0%–3.5% per credit card transaction for small and mid‑sized businesses, with popular rewards and business cards clustering on the upper end of that range.

On a 100 dollar sale, that is $2.00 to $3.50 gone before you have covered a single operating expense, and at scale, it becomes a material drag on margin.

The three models below are the compliant ways to either pass those costs through to customers or bake them into your pricing instead of absorbing them outright.

Model 1: Surcharging

What It Is

A surcharge is a fee added at checkout specifically because the customer chose to pay with a credit card. The amount is a percentage of the transaction, typically equal to your actual cost of processing (or acceptance), and appears as a separate line item on the receipt.

A few critical distinctions that often trip merchants up:

• Surcharges apply only to credit cards — never to debit cards, prepaid cards, or cash, even if the debit card is “run as credit.”
• The purpose is costrecovery, not profit: you generally cannot surcharge above your actual Merchant Discount Rate, and card networks cap surcharges at 3% for Visa and 4% for Mastercard, with some states (like Colorado at 2%) imposing even lower legal limits. This is not a convenience fee. A surcharge is triggered by the payment method (credit card), not by the payment channel (phone, online, etc.).

The Rules You Must Follow

Visa sets the most widely-used standard, and most processors treat Visa compliance as the baseline. Here’s what the card networks require:

• Cap: Visa caps surcharges at 3% of the transaction OR your actual MDR, whichever is lower. Mastercard allows up to 4%, but you must apply a consistent rate across all networks you surcharge. In practice, this means 3% is the effective ceiling for most merchants.
• Advance notice: You must notify your acquiring bank/processor in writing at least 30 days before you begin surcharging.
• Signage: Clear disclosure is required at the point of entry (e.g., your front door or website landing page) AND at the point of sale. The fee must also appear as a separate line item on every receipt.
• No debit surcharging: Federal rules and all card-brand rules prohibit surcharges on debit transactions, period.
• Equal treatment: If you surcharge Visa, you must apply the same rules to Mastercard and other networks you accept. You cannot single out one brand.

Violations carry significant consequences. Non-compliance with Visa rules can result in fines of $50,000 to $1 million. State Attorneys General in prohibited states have pursued civil penalties as well.

Where Surcharging Is and Isn’t Legal

This is the most complicated aspect of surcharging. Federal law does not ban surcharging, but state laws vary widely and are evolving rapidly. As of early 2026:

• “True” bans on separate surcharge line items: A small group of jurisdictions, including California and Massachusetts, treat separate checkout surcharges as illegal “junk fees” or prohibit them outright, while still permitting dual pricing or all‑in pricing in many cases.
• Allowed but tightly constrained:
  • Colorado: allows credit card surcharges but caps them at 2% or the merchant’s actual processing cost, whichever is lower.
  • New York: requires either the full credit‑card‑inclusive price or side‑by‑side cash and card prices to be posted up front and caps surcharges at the merchant’s actual cost.
  • New Jersey, Nevada, South Dakota, Nebraska, and Georgia generally allow surcharging but prohibit charging more than the actual cost of acceptance.
• Generally allowed under network rules: Most remaining states permit credit‑card surcharges as long as merchants follow Visa/Mastercard rules (credit only, caps, disclosure, registration where required).

The Real Business Impact of Surcharging

The data on consumer reaction to surcharges is consistent across multiple independent studies and is something every business owner should take seriously before implementing this model.

• D. Power (2025): 65% of cardholders have been surcharged; satisfaction drops 39 points on average when it happens.
• D. Power (2025): 81% of cardholders who encountered a surcharge tried to use an alternative payment method to avoid it.
• D. Power Small Business Study (January 2026): 32% of small businesses that surcharge report customers canceling purchases when they see the fee at checkout — nearly one in three transactions at risk.
• PCMI (2024): 73% of cardholders said they would use credit cards less frequently if they had to pay a surcharge every time.

This doesn’t mean surcharging is wrong for every business. B2B companies with sophisticated buyers, high-ticket industries like legal services or contractors, and businesses where customers have few alternatives may see very different outcomes. But for consumer-facing retail, restaurants, and service businesses, the customer friction data is hard to ignore.

Surcharging: Best Fit For

• B2B merchants with large invoices where the surcharge math clearly saves money
• Businesses in states with clear surcharge-friendly laws and consistent legal guidance
• Merchants where credit card use is infrequent or the customer base is payment-method flexible
• Businesses with strong enough brand loyalty that a small percentage of customers switching payment methods won’t hurt revenue

Model 2: Convenience Fees

What It Is

A convenience fee is a charge for the privilege of paying through an alternative, non-standard payment channel — one that is different from the merchant’s typical or primary way of accepting payments.

The critical word here is “alternative.” The fee is triggered by the channel, not the payment method. Classic examples:

• A theater normally sells tickets in person. It adds an online ticketing option. The fee for using the website = a legitimate convenience fee.
• A utility company’s primary method is in-person or by mail. They add a phone payment option. The fee for calling in = a legitimate convenience fee.
• A restaurant that primarily accepts in-person payments sets up an app for phone orders. The fee for the app = potentially a legitimate convenience fee.

But if a business already accepts credit cards online as a primary method, there is no “alternative channel” — and a fee tacked onto those transactions would likely violate card network convenience fee rules and could be reclassified as an unauthorized surcharge.

The Rules You Must Follow

Visa’s rules on convenience fees (directly from Visa’s published Core Rules) specify:

• Must be a flat dollar amount — never a percentage. A $3.50 convenience fee is acceptable. A 3.5% convenience fee is not.
• Must represent a genuine alternative/non-standard channel — not simply the merchant’s standard way of doing business.
• Must be disclosed clearly before the customer completes the transaction.
• Must be applied consistently to all payment methods within that channel (i.e., you cannot charge it only to Visa but not Mastercard in the same online portal).

Mastercard and Amex:

• Mastercard allows convenience fees under a different, more limited program (notably for pre‑certified government and education) and is more flexible on percentage vs flat structure, but still expects any such fee to apply across brands in that channel and not “double‑dip” with surcharges.

Because the fee is flat and tied to the channel rather than the payment brand, it avoids most of the legal complexity around surcharging — but the channel legitimacy requirement is the key compliance risk.

Geographic Flexibility

Convenience fees are generally legal nationwide, including in California, Connecticut, Maine, and Massachusetts where surcharging is prohibited. This makes them a valuable tool for merchants in surcharge-banned states — but only if the genuine alternative-channel requirement is met.

In states like Georgia, the convenience fee requires that an alternative payment method (like cash) must also be offered. Always verify state-specific rules in your jurisdiction.

Customer Reaction

Consumers usually accept convenience fees more easily than surcharges because they feel they are paying for something tangible: the option to pay online, by phone, or in an app. The fee feels tied to a service rather than a penalty for using their preferred card.

However, the flat‑fee structure creates its own problems. A 3.50 fee on a 20 dollar bill is 17.5% of the purchase and may be more than your actual processing cost, which feels excessive on small tickets. On a 500 dollar payment, the same 3.50 is under 1%, so you are under‑recovering your costs. That is why dual pricing’s percentage‑based model often works better for merchants with a wide range of ticket sizes.

Convenience Fees: Best Fit For

• For some government and public sector agencies adding online or phone payment options, convenience fees can make sense if properly implemented. However, for many government payments, such as tax payments, a service fee program is often the better option. To understand the differences in greater detail, see our post Service Fee vs Convenience Fee.
• Historically, some utilities that defaulted to in‑person payments used convenience fees when adding pay‑by‑phone or online channels. However, as of October 18, 2025, many utility payments are better suited to a service fee program, which Visa has now explicitly extended to utilities under MCC 4900.
• Theaters, event venues, or ticketing platforms that primarily sell tickets in person and are adding an online sales channel.
• Service businesses whose primary model is in‑person and that are adding a single digital payment option as an alternative channel, not a replacement for their customary method of payment.
• Merchants in surcharge‑prohibited states who truly have a customary in‑person payment channel and offer an online or phone option as a genuine alternative and therefore may use a convenience fee where surcharging is not allowed.

Model 3: Dual Pricing

What It Is

Dual pricing (also called cash discounting) is a model where the merchant posts two prices wherever any price is displayed: a higher card price that includes the cost of processing, and a lower cash price for customers who pay with cash, check, or ACH.

The key structural difference from surcharging: the card price is the advertised price. Customers who pay with cash receive a discount from that price, rather than the cash price being the base price with a fee added on top. This distinction is legally significant — regulators and card networks treat a discount from an established price very differently from a hidden fee added at checkout.

Example: A restaurant prices a burger at $15.60, which is the card price. Customers paying cash see that price drop to $15.00 at checkout — a $0.60 discount that offsets the ~4% processing cost. No surprise. No added fee.

Why this Makes Sense Legally

Dual pricing rests on a particularly strong legal foundation because merchants are clearly permitted to offer discounts for certain payment methods. This principle has been established in federal law since 1981, when Congress explicitly allowed businesses to charge lower prices for cash payments.

Regulators’ growing focus on so‑called “junk fees” unexpected or hidden add‑on charges at checkout also favors a dual pricing approach, since the card‑inclusive price is disclosed up front rather than added later. In states with strict price‑transparency rules, such as California and Minnesota, this has effectively nudged many merchants toward dual pricing and away from add‑on surcharges.

When properly implemented, dual pricing is permitted in all 50 U.S. states, which cannot be said as broadly for surcharging or convenience fees in every context.

What “Correctly Structured” Means

The distinction between compliant dual pricing and surcharging (which would then be subject to all surcharging laws) comes down to a few critical implementation points:

• The card price must be the default advertised price — shown on menus, price tags, websites, and all marketing materials. You cannot advertise the lower cash price and then add a fee for card use.
• Both prices must be shown wherever any price appears — at the point of entry, on menus/shelves, and at checkout. The customer must be able to make an informed choice before committing to a purchase.
• The framing must be a discount, not a penalty. “Pay with cash and save $X” is dual pricing. “We add a fee for credit card use” is surcharging.

The difference between dual pricing done right and surcharging done wrong is sometimes just a matter of which price you post first and how you describe the difference. This is worth getting right — particularly in California and Virginia, where penalties for violations can reach $2,500–$5,000 per incident.

The Business Case for Dual Pricing

Beyond legal simplicity, dual pricing often produces better business outcomes than surcharging because of how customers psychologically frame the choice. Being offered a discount feels different from being charged a penalty — even if the math is identical.

• Businesses typically see 20–30% more customers choose cash or ACH after implementing dual pricing, directly reducing processing costs.
• Most businesses save 2–4% of total card revenue — amounting to $200–$2,000+ per month for a typical small business.
• Because the card price is the advertised price, no customer ever sees a surprise fee at checkout. This eliminates the satisfaction hit and the purchase cancellation risk that surcharging creates.
• Multi-state operators can run one consistent program nationwide rather than managing state-by-state legal complexity.

Dual Pricing: Best Fit For

• Any business that accepts credit cards as its primary payment method across most or all channels
• Restaurants, retail, service businesses, and e-commerce
• Multi-state operators who want one compliant program nationwide
• Merchants in California, Connecticut, Maine, Massachusetts, or any other surcharge-restricted state
• Businesses where customer experience is a priority and surprise fees would damage the relationship

Side-by-Side Comparison: All Three Models

Use this table as your quick reference when evaluating which model fits your situation.

Surcharging State-by-State Quick Reference (2025–2026)

Note: State laws change frequently. Always verify current rules with your payment processor and legal counsel before implementing any fee program.

Which Model Is Right for Your Business? A Decision Guide

Use the decision table below as a starting point, then apply the deeper analysis in this section.

The Multi-State Business

If you operate across state lines — especially if you have any presence in California, Connecticut, Maine, or Massachusetts — dual pricing is almost always the right answer. Managing surcharge legality state-by-state creates compliance overhead, legal risk, and inconsistent customer experiences. One properly structured dual pricing program eliminates all of that.

The Single-Channel Online or Phone Business

If you’re adding a specific alternative channel (an online portal, a phone payment option) to a business whose primary model is still in-person or mail-in, convenience fees are built for you. The flat fee is easy for customers to understand, the rules are simpler than surcharging, and the compliance path is clear

The High-Volume Consumer Business

Restaurants, retailers, salons, gyms, and similar businesses that accept credit cards as their primary method across all channels should strongly lean toward dual pricing. The J.D. Power data on surcharge-driven purchase cancellations (32% of surcharging merchants report this) is particularly relevant here — these businesses depend on smooth, frictionless checkout experiences.

The B2B or Professional Services Firm

Law firms, accounting firms, contractors, consultants, and similar B2B providers often have a different calculus. Their clients are sophisticated, invoices are large, and the per-transaction math makes a 3% surcharge significant in absolute terms. These businesses may find that surcharging works well — provided they’re in surcharge-legal states, get proper legal guidance, and notify clients in advance. Many B2B firms are also discovering that offering a cash/ACH discount (dual pricing) is an even cleaner approach, with the added benefit of accelerating payments from clients who want to save money.

Implementation: What You Actually Need to Do

Before You Do Anything

Regardless of which model you choose, these three steps apply:

1. Verify your state’s laws. State surcharge statutes change frequently. Check with your state Attorney General’s office or a payments attorney.
2. Talk to your payment processor. Your processor must be able to support the model you choose — whether that’s flagging surcharges in the correct data fields, enabling dual pricing at the POS, or configuring flat fees for specific channels.
3. Calculate your actual Merchant Discount Rate. Run 90 days of statements and compute your true blended credit card rate. This is your ceiling for surcharging, and it tells you how much you’ll save with dual pricing.

Implementing Surcharging

• Send written notice to your acquiring bank/processor at least 30 days before going live
• Update POS system to calculate the surcharge amount automatically and submit it in the correct data field (not bundled into the transaction total)
• Install required signage: at your entrance/point of entry and at the point of sale
• Update your website if you accept online payments
• Ensure receipts show the surcharge as a separate line item
• Confirm you are NOT applying the surcharge to debit, prepaid, or foreign cards
• Train your employees

Implementing Convenience Fees

• Confirm your business model genuinely has an alternative (non-standard) payment channel
• Set the fee as a flat dollar amount — not a percentage
• Disclose the fee clearly on the alternative channel before the customer commits
• Apply the fee consistently to all card types in that channel
• Keep documentation of why this channel qualifies as “alternative” for your business type
• Train your employees

Implementing Dual Pricing

• Update all posted prices (menus, price tags, website) to show the card price as the primary/default price
• Add clear labeling: each price display should show both the card price and the cash/ACH price
• Update your POS system to automatically apply the discount when a customer selects cash or ACH
• Train staff to explain the system: “We show two prices — pay with card at the listed price, or save [X]% by paying with cash or ACH”
• Review California SB 478, Minnesota’s House File 3438, and Virginia SB 1212 specifically if you operate in those states
• Train your employees

Common Mistakes That Lead to Compliance Problems

Frequently Asked Questions

These are the questions business owners ask most often when evaluating these three models.

The Bottom Line: A Framework for Deciding

Most business owners reading this guide will find their answer in one of three places:

• You accept cards everywhere, you want the simplest compliance path, and you operate in multiple states: Start with dual pricing. It’s legal in all 50 states, it produces the best customer experience, and it eliminates all of the state-by-state legal complexity.
• You’re adding a specific alternative payment channel to an in-person primary business: Consider convenience fees for that channel. Keep the fee flat, disclose it clearly, and ensure the channel genuinely qualifies as “alternative.”
• You’re a B2B business in a surcharge-friendly state with sophisticated clients who understand fee structures: Surcharging may make sense — but get legal counsel first, notify your networks, and keep your rate at or below your actual MDR.

Whichever model you choose, the goal is the same: recover a legitimate business cost in a way that is fully legal, transparently communicated, and as frictionless as possible for the customer. All three models can achieve that when implemented correctly. The differences lie in who they’re right for, where they’re legal, and how your customers are likely to respond.

Key Takeaways

Sources & Further Reading

The following non-competitor sources were used in preparing this guide:

• D. Power 2025 U.S. Credit Card Satisfaction Study (37,293 respondents) — jdpower.com
• D. Power 2025 U.S. Small Business Credit Card Satisfaction Study (~4,400 respondents) — jdpower.com
• Consumer Financial Protection Bureau: 2025 Consumer Credit Card Market Report (December 2025) — consumerfinance.gov
• Visa Core Rules and Visa Product and Service Rules — usa.visa.com
• Mastercard Merchant Surcharge FAQ and Rules — mastercard.com
• S. GSA SmartPay Smart Bulletin #017 — smartpay.gsa.gov
• Federal Reserve Bank of Boston Working Paper 26-02: Merchant Steering of Consumer Payment Choice (2026)
• PCMI: Surcharging — A Major Threat to the U.S. Card Industry (2024) — paymentscmi.com
• The Financial Brand: Surging Credit Card Surcharges May Push More Consumers to Cash/Debit (2024)
• Payments Dive: Consumers Push Back on Swipe Fees Survey (January 2026)
• Virginia SB 1212 (effective July 1, 2025)
• Minnesota House File 3438 (effective January 1, 2025)
• California SB 478 Consumer Protection / Junk Fee Law
• Kansas surcharge legislation (effective January 2025)
• Oklahoma Senate Bill 677 (effective November 1, 2025)

Disclosures & Legal Disclaimer

General Information Only: This guide is provided for educational and illustrative purposes only and does not constitute professional legal, tax, or financial advice. Because payment laws and card network rules are subject to frequent changes, this content should not be used as the sole basis for making business or legal decisions.

State and Local Variability: The legality of surcharging and dual pricing varies significantly by state. While many states permit these practices, strict prohibitions or complex restrictions currently remain in Connecticut, Massachusetts, and Maine. Local consumer protection laws may also impose additional disclosure requirements beyond what is covered in this guide.

Card Network Compliance: Implementing any fee-recovery model requires strict adherence to Visa and Mastercard merchant operating rules. This includes a mandatory 30-day notice to the networks, specific signage requirements, and the federal prohibition against surcharging debit cards, regardless of how they are processed. Failure to comply can result in fines or account termination.

FTC Compliance Warning: Following the May 2025 FTC Junk Fee Rule, any surcharge or service fee must be disclosed upfront and prominently to avoid “drip-pricing” violations. If you do not offer a no-fee payment alternative, such as cash or ACH, mandatory fees may need to be included in your initial advertised price.

Conflict of Interest & Professional Consultation: This article is published by IntelliPay, a provider of payment processing solutions. We have a financial interest in the services discussed. We strongly recommend that you consult with a qualified attorney or a Certified Public Accountant (CPA) to review your specific business model and state-level obligations before implementation.